Kellogg profit rises 2.1%

SaabiraChaudhuri

Kellogg Co.'s
K, +1.04%
third-quarter earnings rose 2.1% as the cereal maker saw strong sales internationally and in North America, although it logged charges related to its acquisition of Pringles and a recently announced product recall.

Last month, Kellogg said it would take a charge of up to $30 million to cover the recall of Mini-Wheats cereal in the U.S. due to possible contamination by pieces of metal mesh. The recall involves 2.8 million packages of Frosted Mini-Wheats Original Bite Size and Unfrosted Mini-Wheats Bite Size, which are being pulled from store shelves. Kellogg blamed the contamination on "a faulty manufacturing part," and said no injuries had been reported.

The company--known for such brands as Pop-Tarts, Rice Krispies and Nutri-Grain--has seen its sales challenged by weakness in Europe, and also by higher commodity costs, a trend that continued in the latest quarter. The company's earnings have also come under pressure recently as it stepped up investments in its supply chain in an effort to avoid a repeat of major product recalls in recent years.

"We're pleased with the improving trends in our underlying performance, which is in-line with our expectations and includes strong revenue growth in many of our businesses," Chief Executive John Bryant said. "We're also pleased that the Pringles business performed better during the quarter than we had expected."

Kellogg reported a profit of $296 million, or 82 cents a share, compared with $290 million, or 80 cents a share, a year earlier. The most-recent quarter included about four cents of integration costs related to the acquisition of Pringles. The cost of the recall announced last month was about six cents a share.

Analysts polled by Thomson Reuters had most recently forecast earnings of 80 cents on revenue of $3.69 billion.

Gross margin narrowed to 38.8% from 40.8% as input costs jumped 16%.

Kellogg North America's net sales grew 11%, or 3.7% organically, as the U.S. Morning Foods and Kashi segment posted organic net sales growth of 5.4%. Kellogg noted that the segment posted strong performance in both the cereal and toaster pastry businesses during the quarter.

Meanwhile, Kellogg International reported that its net sales popped 15%, although the rise was 1% on an organic basis. Kellogg said the Latin American business posted a quarterly organic net sales growth of 3.6%, while the European business saw these decreased by 2.5%. The Asia Pacific segment saw organic net sales growth of 6.8% as the result of good performance in Australia, South Africa, and India.

In September, Kellogg agreed to a joint venture with Wilmar International Ltd. (WLMIY) for the manufacture, sale and distribution of cereal and snacks in China as the U.S. company looks to expand in the fast-growing snack foods market there.

Kellogg backed its organic sales and per-share earnings view for the year, but noted that due to the cost of last month's recall, it now expects that full-year internal operating profit will decline between 4% and 6%.

Shares closed Wednesday at $52.32 and were inactive in recent premarket trading. The stock has risen 9.4% in the past three months.

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